24/7 Wall St.

Earlier this week, Chinese President Xi Jinping’s visit to a factory in Jiangxi Province that makes magnets from rare earth elements led many observers to view the walk-through as a veiled threat to the United States of the next front in the trade war between the two countries.

China is by far the world’s largest producer of the rare earth metals that are used in nearly every high-tech product made. Smartphones, wind turbines and some military hardware are among the things that would not exist with the rare earths, which are not really rare but are usually found in concentrations too small to make mining them cost-effective. Lanthanum, one of the 17 rare earth metals, and also the cheapest, is used as a catalyst in refining crude oil.

To be effective as a new weapon in the escalating U.S.-China trade war, the Chinese would have to stop exporting products, like iPhones, that use the materials. Cutting off exports of the raw metals to the United States wouldn’t have much impact, according to Bank of America analysts Matty Zhao and Edward Leung.

China set a mining quota of 120,000 metric tons (tonnes) of rare earths last year, the analysts said, not enough to meet internal demand. The country needed to import 69,000 tonnes, nearly half of which came from Myanmar. Beginning in about 2011, China cracked down hard on illegal mining of rare earths and has strictly controlled production ever since.

The United States imported only about 4,100 tonnes of China’s production of the rare earths, or around 3.5%. Most of the rare earth materials used in the United States come in as finished goods, largely because China pressured Japanese and U.S. manufacturers of products using rare earths to build factories in China.

The story is a bit different on the finished product side. Finished magnets, like those made in the Jiangxi factory Xi visited, are also by U.S. manufacturers of automobiles and home appliances, and U.S. production capacity for these magnets amounts to about 500 tonnes a year.

The current price to import finished magnet materials from China is about $43,000 a tonne. If China were to cut off exports to U.S. customers, those customers would have to buy the materials from Japan at double the price, according to the Bank of America analysts.

As far as lanthanum is concerned, the United States has its own domestic capacity and could buy more from Australia. Or the United States could import more gasoline. The costs would be higher, of course, than domestically refined gasoline. As The New York Times has noted, “Thanks to circuitous global supply chains, really blocking American access to rare-earth products could mean cutting off much of the rest of the world as well.”